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Additional resources: illinoispolicy.org

190 S. LaSalle St., Suite 1500, Chicago, IL 60603 | 312.346.5700 | 802 S. 2nd St., Springeld, IL 62704 | 217.528.8800   POLICYILLINOIS

ILLINOIS POLICY INSTITUTE SPRING 2016

SPECIAL REPORT LABOR

Cadillac benefits: Illinois state workershighest paid in nation

By Ted Dabrowski, Vice President of Policy, and John Klingner, Policy Analyst 

Additional resources: illinoispolicy.org

190 S. LaSalle St., Suite 1500, Chicago, IL 60603 | 312.346.5700 | 802 S. 2nd St., Springeld, IL 62704 | 217.528.8800   POLICYILLINOIS

ILLINOIS POLICY INSTITUTE SPRING 2016

SPECIAL REPORT LABOR

Cadillac benefits: Illinois state workershighest paid in nation

By Ted Dabrowski, Vice President of Policy, and John Klingner, Policy Analyst 

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Table of contents

PAGE 03 

Introduction

PAGE 04

Illinois state workers are the highest-paid state workers in the country

PAGE 05

 AFSCME workers receive Cadillac health carebenefits

PAGE 07Most state workers receive free retiree healthinsurance

PAGE 08

State workers on average receive $1.6 millionin pension benefits

PAGE 09

The governor’s proposed reforms PAGE 10

Conclusion

PAGE 11

Endnotes PAGE 12

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03

Illinois’ biggest government-worker union, the American Federation of State, County and MunicipalEmployees, is engaged in contract negotiations with the state in an attempt to boost its salariesand benets. As part of its negotiation tactics, AFSCME claims its “middle class” benets are under

attack. That’s why union ofcials are demanding up to $3 billion in salary and benets for unionmembers.1 

AFSCME’s demands ignore four signicant facts about Illinois state-worker compensation:

• Illinois state workers are the highest-paid state workers in the country2

• AFSCME workers receive Cadillac health care benets3 • Most state workers receive free retiree health insurance4 • Career state retirees on average receive $1.6 million in pension benets5 

It’s not fair that Illinois residents, struggling with stagnant incomes in one of the nation’s weakesteconomies,6 continue to subsidize AFSCME benets to such an extent.

Many other unions that contract with the state have recognized that taxpayers can’t withstandhigher taxes to fund workers’ pay and benets. Ofcials from more than 17 unions, including theTeamsters, understand the depth of Illinois’ scal crisis and have been willing to compromise andcome to affordable contract agreements with the state.

AFSCME, which represents a mere 0.5 percent of Illinois’ total labor force (35,000 state workersout of a total 6.5 million workers), is putting undue pressure on the state and its nances.7 

AFSCME’s demands include new state-worker salary, health care and pension benets. Specically,AFSCME leaders are seeking four-year raises ranging from 11.5 to 29 percent, a 37.5-hourworkweek, ve weeks of vacation and enhanced health care coverage.8 

In contrast, Gov. Bruce Rauner has proposed a reform plan as part of the ongoing contractnegotiations with AFSCME. Under the governor’s plan, AFSCME workers would undergo atemporary salary freeze in return for new merit pay and incentive bonuses.

In addition, workers would also have their health care benets modied. Under the reform plan,Illinois taxpayers would still subsidize 60 percent of AFSCME workers’ annual health care costs,while state workers would be asked to pay 40 percent of their costs, up from 23 percent.9

It’s in the best interest of all Illinoisans to provide salary, health care and pension benets that areaffordable for both state workers and taxpayers. Instead of increasing benets as AFSCME hasdemanded, the state should work to bring its employees’ total compensation more in line with whatthe private sector can afford.

Introduction

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04

Illinois state workers are the highest-paid state workers in the country

Illinois state workers receive the highest wages of any state workers in the country, when adjustedfor cost of living. Illinois pays its state workers more than $59,000 a year when adjusted for cost of

living, far more than its neighbors and nearly $10,000 more than the national average.10

Moreover, state AFSCME workers have seen salary increases not matched by Illinois’ private sector.

Median AFSCME worker salaries increased more than 40 percent from 2005 to 2014, to morethan $62,800 in 2014. During that same period, median private-sector earnings in Illinois remainedvirtually at.11 

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 AFSCME workers receive Cadillac health carebenefits

In addition to being some of the highest-paid state workers in the nation, AFSCME workers alsoreceive Cadillac health care. Taxpayers subsidize a majority of these health care benets.

State AFSCME workers receive insurance benets equivalent to a platinum-level plan offeredthrough the Affordable Care Act, or ACA, insurance marketplace. Platinum-level insurance is dened

as any plan that pays for 90 percent or more of an individual’s incurred health care expenses(e.g., broken arms, ofce visits, etc.). Individuals pay the remainder out of pocket through copays,coinsurance and deductibles.12 

The average health care cost for an AFSCME worker13 totals $19,332 a year ($1,611 a month).14 

AFSCME workers pay for just 23 percent of that cost, or $4,452 a year ($371 a month). Thatincludes $2,904 in premium payments and $1,548 in out-of-pocket expenses, such as deductiblesand copays.

05

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State taxpayers pay the remaining 77 percent, or an average of $14,880 per worker ($1,240 amonth).

Illinois taxpayers cannot afford this arrangement. AFSCME workers receive platinum-level benetsbut only pay the equivalent of bronze-level insurance premiums. These Cadillac plans force a vastshare of workers’ health care costs onto state taxpayers.

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Most state workers receive free retiree healthinsurance

In addition to Cadillac health care benets for active AFSCME workers, the state also subsidizes

100 percent of the health insurance costs for most state retirees.

State workers receive a 5 percent reduction off of the cost of their retiree insurance premiumsfor each year they work for the state. Under this deal, the state pays for 100 percent of healthinsurance premiums for an employee who works 20 years for the state.

As a vast majority of Illinois state workers retire with 20 or more years of service, Illinois taxpayerspay for the entirety of those workers’ health insurance costs.

The taxpayer cost of this benet is $200,000 to $500,000 per employee, depending on when theworker was hired, how long he or she worked, and when he or she retired.

An ordinary worker in the private sector would need to have $200,000 to $500,000 in the bankbefore retirement to purchase the same retiree health insurance that most state workers get forfree.

Illinois is one of only a few states in the country to offer such a deal. Taxpayers in other states, onaverage, pay for less than half of their state retirees’ health insurance costs.15 

Such a benet is nearly unheard of in the private sector. Only 25 percent of large rms across thecountry offer health insurance to both their active workers and retirees. And in cases where private-sector workers do receive retiree health insurance from their place of work, those workers typicallypay all or most of their insurance premiums themselves.16

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State workers on average receive $1.6 millionin pension benefits

Big salaries for Illinois state workers become big pension benets when they retire.

Career state workers, those who work 30 or more years, will average $1.6 million in benets overthe course of their retirements. That’s on top of Social Security benets that nearly all state workersreceive. Generous retirement rules, longer life expectancies, and substantial cost-of-living increaseshave boosted pension benets.17 The pension crisis is worsened by the fact that over half of stateworkers retire in their 50s.

In all, state workers pay the equivalent of just 4 percent of their total pension benets to thepension fund (8 percent, including investment returns).18 

This difference between what a state worker puts in and the benets he receives in return isfundamentally unfair to the Illinois taxpayers who must pay for pensions. Private-sector workers areexpected to fund the pensions of government workers who will earn back what they contributed tothe pension funds after just a little more than a year in retirement.

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The governor’s proposed reforms

Rauner has proposed a set of compensation-reform plans as part of the ongoing contractnegotiations with AFSCME. The governor’s proposed reforms for AFSCME workers would bringtheir costs more in line with what the private sector can afford, while still providing generous

compensation to state workers.

Under the governor’s plan, AFSCME workers would undergo a temporary salary freeze in return formerit pay and incentive bonuses.19 

In addition, instead of allowing workers to continue to pay bronze-level prices for platinum healthcare benets, the governor is seeking to realign AFSCME workers’ health care costs so they moreclosely match their corresponding benets.

Under the governor’s plan, Illinois taxpayers would still subsidize 60 percent of AFSCME workers’annual health care costs, or over $11,600 per worker annually. Workers would be asked to pay 40

percent of their costs, or $7,728 a year, up from 23 percent.

20

 The governor’s reform proposal offers state workers a choice regarding how they want to pay fortheir increased share of their health insurance costs.

State workers could choose to keep their current monthly premiums and pay additional out-of-pocket expenses, pay the same out-of-pocket expenses but have their monthly premiums grow, or acombination of the two.

The governor’s attempt to more closely align state-worker health care costs with those in the privatesector should also be understood in the context of the wages AFSCME members and other stateworkers currently receive.

Asking AFSCME workers to contribute their fair share for their own health care benets is not outof line considering that most state workers receive free retiree health insurance, that Illinois stateworkers in general receive the highest wages in the nation, and that AFSCME workers in particularhave seen their salaries grow signicantly over the past decade.

It would also help relieve some of the nancial burden on Illinois’ private-sector workers, who aresuffering from stagnating wages and massive health care cost increases due to the impact ofthe ACA. Younger Illinoisans on the ACA health insurance exchanges have been hit particularlyhard. Between 2013 and 2015, premiums jumped 132 percent, or by over $1,800, for youngerindividuals.21 And in 2016 alone, the average premium for all individuals in Illinois will grow byanother 22 percent.22

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Conclusion

Illinois middle-class residents, struggling with stagnant incomes in one of the nation’s weakesteconomies,23 can no longer afford to subsidize AFSCME workers’ unrealistic benets.

Instead of demanding additional benets, AFSCME should follow the lead of the 17 other stateunions that have come to an affordable compromise with the state.

It’s in the best interest of all Illinoisans to provide salary, health care and pension benets that areaffordable for both state workers and taxpayers. Instead of increasing benets as AFSCME hasdemanded, the state should work to bring its employees’ total compensation more in line with whatthe private sector can afford.

 

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Endnotes 1  Letter from Gov. Bruce Rauner to All State Employees, January 15, 2016, http://www.illinois.gov/gov/Documents/

Press%20Releases/20160115-Governor-Rauner-Letter-to-State-Employees.pdf.2  “State Annual Personal Income & Employment,” U.S. Bureau of Economic Analysis, http://www.bea.gov/regional/index.

htm.

3  Data obtained from the Governor’s Office pursuant to a FOIA request; “What the Actuarial Values in theAffordable Care Act Mean,” Kaiser Family Foundation, April 2011, https:// kaiserfamilyfoundation.files.wordpress.

com/2013/01/8177.pdf.4  Mercer, Retiree Healthcare Contributions, (Commission on Government Forecasting and Accountability: May 17,

2011), http://cgfa.ilga.gov/Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf.5  Ted Dabrowski, John Klingner, “What’s Driving Illinois’ $111 Billion Pension Crisis,” Illinois Policy Institute, April 2016,

https://www.illinoispolicy.org/reports/whats-driving-illinois-111-billion-pension-crisis/.6  Austin Berg, “Illinoisans See 2nd-Worst Income Growth in the Nation Since Recession,” Illinois Policy Institute,

February 16, 2016, https://www.illinoispolicy.org/illinoisans-see-2nd-worst-income-growth-in-the-nation-since-recession/.7  Count of AFSCME workers obtained from the Governor’s Office pursuant to a FOIA request.8  Letter from Gov. Bruce Rauner to All State Employees, January 15, 2016, http://www.illinois.gov/gov/Documents/

Press%20Releases/20160115-Governor-Rauner-Letter-to-State-Employees.pdf.9  Data obtained from the Governor’s Office pursuant to a FOIA request.10  “State Annual Personal Income & Employment,” U.S. Bureau of Economic Analysis, http://www.bea.gov/regional/

index. htm11  Ted Dabrowski, “Madigan’s Middle Class: Pain for the Many, Perks for the Few,” Illinois Policy Institute, March 26,

2016, https://www.illinoispolicy.org/madigans-middle-class-pain-for-the-many-perks-for-the-few/.12  “What the Actuarial Values in the Affordable Care Act Mean,” Kaiser Family Foundation, April 2011, https://

kaiserfamilyfoundation.files.wordpress.com/2013/01/8177.pdf.13  The average AFSCME worker also has one to four dependents on his plan; as such, the average cost for a worker is

not just for the worker himself, but includes the costs of dependents.14  Data obtained from the Governor’s Office pursuant to a FOIA request15  Mercer, Retiree Healthcare Contributions, http://cgfa.ilga.gov/Upload/2011-MAY-17MercerRetireeHealthcareContribu

tions.pdf.16  “2015 Employer Health Benefits Survey,” Kaiser Family Foundation, September 22, 2015, http://kff.org/report-

section/ ehbs-2015-summary-of-findings/.17  Ted Dabrowski, John Klingner, “What’s Driving Illinois’ $111 Billion Pension Crisis,” Illinois Policy Institute, April 2016,

https://www.illinoispolicy.org/reports/whats-driving-illinois-111-billion-pension-crisis/.18  Ibid.19  Letter from Gov. Bruce Rauner to All State Employees, January 15, 2016, http://www.illinois.gov/gov/Documents/

Press%20Releases/20160115-Governor-Rauner-Letter-to-State-Employees.pdf.20  Data obtained from the Governor’s Office pursuant to a FOIA request.21  Drew Gonshorowski, “How Will You Fare in the Obamacare Exchanges?” Heritage Foundation, October 16,

2013, http://www.heritage.org/research/reports/2013/10/enrollment-in-obamacare-exchanges-how-will-your-health-

insurancefare; Drew Gonshorowski, “2015 ACA-Exchange-Premiums Update: Premiums Still Rising,” Heritage

Foundation, March 20, 2015, http://www.heritage.org/research/reports/2015/03/2015-aca-exchange-premiums-update-premiums-stillrising.22  “2016 Obamacare Premium Increase Tracker,” Freedom Partners, January 10, 2016, http://freedompartners.org/

latestnews/2016-obamacare-premium-increases/.23  Austin Berg, “Illinoisans See 2nd-Worst Income Growth in the Nation Since Recession,” Illinois Policy Institute,

February 16, 2016, https://www.illinoispolicy.org/illinoisans-see-2nd-worst-income-growth-in-the-nation-since-recession/.

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